Is Financial Life Management (FinLife) Going To Replace Financial Planning and Wealth Management?

Executive Summary

As the world of financial advice continues to evolve, so too does everything from the services we provide to clients, the business models by which we operate, and the labels that we use to describe ourselves. The past 50 years alone we witnessed transitions from insurance agents and stockbrokers, to financial advisors and financial consultants, to financial planners, and now wealth managers.

And now the ongoing crisis of differentiation appears to be spurring the next evolution for financial advisors, towards an ever-more-holistic model that United Capital’s Joe Duran has dubbed “Financial Life Management” instead. In this ‘new’ approach, advisors would be increasingly focused around client advice in regards to work and employment, and spending behaviors – which research finds is, from the consumer’s perspective, the real focus of their “financial life story” (and not their savings and investment portfolios!).

Of course, the caveat is that most financial advisors have limited skills and even fewer tools to support clients when it comes to areas like managing their human capital and providing guidance on spending and household cash flow. Yet in this gap is the very opportunity for firms to differentiate themselves by going deeper into a new type of service model. Including firms like United Capital that may offer a platform (e.g., FinLife Partners) to deliver on the FinLife value proposition.

Ultimately, it remains to be seen if “Financial Life Management” really becomes the new term du jour that supplants financial planning and wealth management, but arguably the time really has come for the next stage of advisor evolution. And “FinLife” seems as good a label as any to capture the ever-more-holistic focus for the future of financial advice!

The Progression Of Labels For Financial Advisors

As the financial services industry has evolved, so too has the role that financial advisors play, the value-add that they provide, and even the labels by which they hold themselves out to consumers.

The rise of financial salespeople in the insurance world were later complemented by the parallel rise of stockbrokers, accelerated by the de-regulation of fixed trading commissions in May 1975 and focused increasingly on stocks after the Tax Reform Act of 1986 eliminated many other types of tax-shelter investments (which were commonly sold by financial salespeople at the time). By the mid-to-late 1980s era, it was the heyday of Wall Street and stockbrokering.

Yet the explosion of salespeople peddling insurance policies and stocks (and later mutual funds) eventually become so overwhelming by the 1980s, that the best salespeople realized they needed a better, more consultative approach to differentiate themselves. The end result was the creation of the CFP marks (with the first class of CFP certificants minted in 1973), and an increasingly consultative selling approach that started with understanding a client’s goals, and then selling them what they needed as a solution.

By the 1980s, this new crop of “financial advisors” were becoming more successful than their stockbroker and insurance agent brethren, as consultative financial advice provided greater value to the client and led consumers to prefer financial advisors over ‘pure’ salespeople. As it was harder and harder to get paid for selling insurance or brokering stocks (and undermined by life insurance sales scandals and the ongoing decline of stockbrokering commissions), the stockbroker and insurance agent labels vanished from the business cards, to be replaced by financial advisor and financial consultant.

What Is Financial Life Management?

As United Capital defines it, Financial Life Management (or “FinLife” for short) is about taking a holistic view of and providing advice at the intersection of a household’s life and financial decisions.

Relative to how most firms implement wealth management – which includes the discretionary management of investment portfolios – the key distinction here is that Financial Life Management would be about more than just managing the client’s investments (or their “wealth” as a wealth management firm). Instead, the focus is on all the intersections of the client’s life and financial decisions.

Yet in the process of asking clients to talk about their own life story in the context of their finances (i.e., their “financial life story”), the research revealed that for most people their financial life story focuses remarkably little on saving and investing behaviors. Instead, the bulk of the key “chapters” of one’s financial life story are oriented around working and spending decisions (such that investing and savings behaviors are simply a by-product of the decisions in those other categories)!

In turn, the key turning points for most people in their own life stories were the moments that entailed significant financial trade-offs, from the decision to live close to home or far away, send children to public or private school, take a high-paying stressful job over a lower-stress one with less pay, or pursuing job stability versus starting a new business. Yet even in these situations, the research found that the financial or money aspects of the decision are generally not the driver of the choice; instead, consumers try to make such decisions to align with their personal values (as the study puts it, we strive towards their “ideal selves”), and then try to assess the financial consequences of the desired choice.

From the perspective of traditional financial planning and wealth management, though, the results of the United Capital research suggest that our typical savings-and-investment-centric focus is not actually how most consumers think through their financial issues and make significant life decisions. Instead, savings and investment are the outcomes of those other working and spending-related life decisions. Which means giving truly effective financial advice requires de-emphasizing portfolios and the making of contributions to them (not that those aren’t relevant to financial success, but that those outcomes aren’t the basis for how most consumers make real-world decisions!).

Is Financial Life Management Really What Financial Advisors Do (Already)?

Arguably, some financial planners might already claim that financial life management isn’t anything novel or unique; it’s simply our current world of comprehensive financial planning when it’s actually done “right” and in a holistic client-centric manner. And “life planning” industry pioneers like Mitch Anthony and George Kinder have suggested for years that good financial planning starts with focusing on a client’s personal values, and that financial decisions flow from the pursuit of non-financial life goals.

Accordingly, perhaps the reality is that Financial Life Management is really little more than a label for the combination of financial planning and life planning – two disciplines that already exist, merged into what is arguably a better holistic term of “Financial Life Management” or “FinLife” that is more intuitively understandable for consumers.

And in point of fact, the reality is that there were people providing wealth management services long before the wealth management label appeared, just as the origination of financial planning – in the form of creating the Certified Financial Planner (CFP) marks – predated the rise and popular use of the “financial planner” term by a decade or two. In this context, the fact that many financial planners and wealth managers might already be doing Financial Life Management doesn’t mean we can’t still have a new/better/clearer term to articulate the service model going forward (and differentiate from the other financial planners and wealth managers who don’t actually deliver on it).

In other words, just as saying you were a financial planner was an effective way to differentiate from stockbrokers and insurance agents who may have already also been giving financial planning advice (but didn’t hold out as such), and the same for holistic wealth managers trying to differentiate from financial planners, so too may Financial Life Management emerge as a new way to label this new constellation of even-more-client-centric and even-more-holistically-oriented financial advice and client service model. Although ironically, if the label does gain traction, we may find someday a large number of advisors claiming to do Financial Life Management even though they don’t really deliver it, just as today there are a number of “financial planners” and “wealth managers” who don’t really have the expertise to provide it!

Are Financial Advisors Really Prepared To Offer A Financial Life Management Service Model?

Notably, as with the other “financial advisor” transitions over the years, the industry’s evolutions to subsequent stages of “advisor value-add” are about more than just adopting a new label and tagline as a marketing differentiator. Each step also involves developing new core competencies, new service model capabilities, and in most instances an entirely new business model as well.

For instance, as the United Capital research shows, if you ask someone about their “financial life story” or more simply what their “financial lifeblood” is, the answers revolve almost entirely around their work (i.e., their human capital and ability to earn income), and their spending (i.e., cash flow). It’s not their investment savings and retirement accounts.

And of course, if financial planners and wealth managers really are going to evolve away from a portfolio-centric investment management service into these more holistic Financial Life Management services, the AUM business model altogether may start to seem less and less relevant. This isn’t entirely surprising, as every major evolutionary change of financial advisors has entailed some significant shift in business model as well… from stockbrokers and insurance agents selling their company products, to financial advisors independently brokering any company’s products, to financial planners getting paid for financial planning itself, wealth managers getting paid through AUM, etc.

In the end, I will admit that I’m not entirely certain “Financial Life Management” will be the term that sticks for the emerging new model of holistic financial advice. It’s as good as any label, but given that United Capital’s own research shows that someone’s “FinLife” is primarily about career and spending decisions – areas in which most financial advisors are currently weak, both in terms of software tools to support us, a skillset and service model to deliver, and a business model that’s aligned with it – we arguably still have a long ways to go in our evolution if Financial Life Management is the future we’re really going to deliver upon. Nonetheless, with the ever-growing differentiation pressures growing on most financial advisors, it seems the time is ripe for a new term to emerge and the next stage of advisor evolution to get underway!

So what do you think? Is Financial Life Management a good label for the future of financial advice? Are advisory firms really prepared to deliver on Financial Life Management? Will there be a new business model to emerge in this transition?